Legal Alert | KRA Sheds Light on New Compensating Tax Provision

Legal Alert | Key Highlights From The 2019-2020 National Budget Statement

The Budget Statement for the FY 2019/20 was read on 13 June 2019 by the Cabinet Secretary for the National Treasury, Hon. Henry Rotich (the CS). The theme for this year’s Budget Statement is: Creating Jobs, Transforming Lives – Harnessing the “Big Four” Plan.

At this stage, we have not yet seen the Finance Bill 2019 which will set out the statutory provisions that are proposed to be amended. The Finance Bill 2019 will also stipulate the effective date when the provisions discussed below should take effect.

We will, therefore, provide an updated bulletin once the Finance Bill 2019 has been published by the Government Printer and has been issued to the public.

For now, we set out below the key highlights from the Budget Statement:


1. Income Tax

This year the CS introduced very minimal changes to the Income Tax Act on the basis that the Income Tax Bill, 2018 is in the advanced stages of legal drafting and is expected to be tabled before Parliament by mid-July 2019.

a. Capital Gains Tax (CGT): In order to align Kenya’s CGT rate with its EAC counterparts, the CS has proposed an increase in the CGT rate from 5% to 12.5%. There was no indication whether an indexation or tapering system to take into account the impact of inflation will be introduced. This will be confirmed once the Finance Bill, 2019 is issued to the public.

b. CGT exemption: The CS has proposed to extend the CGT exemption currently existing in the Eighth Schedule to the Income Tax Act, to gains made from the transfer of property in internal corporate restructuring transactions, provided there are no third parties involved. The A&K Tax Team has consistently lobbied the National Assembly and the National Treasury for a CGT exemption on internal corporate restructuring and therefore the introduction of this exemption is a very welcome move.

c. Lower corporate tax: The CS has proposed to lower the corporation tax rate for plastic recycling companies from the usual 30% to 15% for the first five years of operation.

d. Withholding tax: The CS has proposed to include the following services as part of professional services for purposes of withholding tax:

e. Electricity allowance: In 2019, the Income Tax Act was amended to introduce a 30% tax deduction on electricity cost incurred by manufacturers in their operations subject to conditions that were to be set by Ministry of Energy. The CS has indicated that the framework for claiming the 30% tax deduction is now in place and the manufacturers can now utilise this incentive.


2.Value Added Tax (VAT)

a. The scope of goods which are exempt from VAT has been increased to include:

b. VAT refunds:


3. Customs Duty

a. Import duty rate changes

b. General industry changes


4. Excise Duty


5. Tax Procedures Act, 2015 (TPA)


6. Miscellaneous Fees and Levies Act, 2016 (MFLA)


7. Other Proposals

a. Banking Act (Cap 488)

b. Insurance Act (Cap 487) and Insurance (Policy Holder’s Compensation Fund) Regulations, 2010 (the Regulations)

c. the Insurance (Motor Vehicle Third Party Risks) (Certificate of Insurance) Rules (the Rules)


8. Other Changes

There are a number of additional changes and clarifications which we expect will be reflected in the Finance Bill, 2019 including the following:

a. various changes to the Real Estate Investment Trusts (REITs) regime;

b. clarification on whether the new compensating tax provisions apply to dividends arising from exempt income;

c. proposals on taxation of the Digital Economy which has been an area of focus by the Government and most economies globally;

d. clarity on what constitutes an export of services for VAT purposes; and

e. further tax incentives to enhance the attractiveness of the Government’s affordable housing scheme.


Our detailed client alert will follow once we have received and reviewed the Finance Bill, 2019 which we expect to be published soon.

Should you require more information, please do not hesitate to contact Daniel Ngumy, Kenneth Njuguna or the Tax Team at taxteam@africalegalnetwork.com.

   
Daniel Ngumy
Partner | ALN Kenya
dng@africalegalnetwork.com
Kenneth Njuguna
Senior Associate | ALN Kenya
kkn@africalegalnetwork.com

 


The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.